Credit Union or Big Bank: Which is Better for Managing Your Money?

[Cygnus_A]

What do you guys think about the advantages/disadvantages of being at, say, BofA vs being at a local credit union?

For a savings account and for loans, it seems that credit unions take the cake with their low interest rates and (relatively) bigger returns on savings.

But for getting a credit card, an account at somewhere like BofA or Wells Fargo seems like a better deal. Or maybe it's better to get a credit card through a third party.

I'm trying to decide how to manage my money (between spending, saving, paying back loans and investing). I'm also starting to build up credit (but don't yet have a credit card).

Any advice and/or comments?

 

[D H]

With regard to credit cards, it's easy. Find one with no fees. Then find another. And then pay the full balance every month. No exceptions. Never, ever get stuck in the cycle of paying the minimum. That is the road to debtor's purgatory. If the statement says the balance is X, that's what you pay. That means keeping track of your expenditures so you don't get shocked with a bill you cannot pay.

Why a second card?

The key reason is that you'll eventually come across a restaurant or store that doesn't take Visa. Or Mastercard. Or whatever. Having that backup card means you don't have to keep a reserve of cash on hand. A related reason: sometimes, credit cards just don't work. The machine just won't read card X. It's a good idea to have card Y that the machine will read. This happens a lot with me. I have to get duplicate cards multiple times a year. I must be doing something wrong with my wallet. Or maybe my butt is magnetic?

The second reason is that having multiple cards is very good for your credit score -- but only if you pay all of them off in full every month, and only if you keep the maximum balance below 30% of your credit limit on anyone card. Having a second card help in that regard. If you watch what you spend, that second card shouldn't change your spending habits one iota. It will however reduce the maximum balance as a proportion of your spending limit. The maximum balance should occur at the end of the month, and you should pay that off in full.

The third reason is that just in case you do get in a financial bind, that second card can help. It's a backup to your backup plan. (Your first plan should be to have some readily accessible cash, such as a bank account.) Just because you never use your backup plan doesn't mean you don't need a backup to your backup plan. I work with systems where triple redundancy is mandatory. The systems hardly ever fail over to the first backup, let alone the second. It does happen on occasion. It's good to have a backup to your backup. I have three credit cards, and I pay each of them off in full every month.

 

[Evo]

Shop around for cards. I just got 2 cards from one of the US's largest credit card companies. No annual fee. No interest charges for 18 months. If I charge $500 in the first 3 months, they will give me back $200. I get 1% back on all purchases and 5% back on select purchases.

I would be insane not to take these cards!

 

[Greg Bernhardt]

Make sure you get credit cards with rewards. Use your cards for everything you can and ALWAYS pay the entire balance each month. I am able to use my points for a airline flight most years because of this.

I personally use a credit union. They just have a better feel than a big bank. They also seem to have more regulations and I can have a say in management.

 

[Evo]

Is paying off the balance each month really the best?

Paying in full won't improve credit score

Paying your credit card balance in full but using most of your credit limit every month can actually hurt your credit score. In that sense, your spending habits aren't "fine." You don't get extra points for paying in full, even though it's financially smart to do so. The score relies on information in your credit report, which doesn't indicate that you've paid off the balance. What it does show are your monthly balances as reported by creditors.

http://www.bankrate.com/finance/credit-cards/paying-in-full-won-t-improve-credit-score.aspx

It's all a confusing game to me, luckily I am not shopping for a mortgage or car loan.

According to FICO, opening several accounts, charging a small amount on each and paying on time is the best way to increase your credit score. Just read that the other day, if I can find it, I'll post it.

 

[Vanadium 50]

Or maybe my butt is magnetic?

That's what the ladies tell me.

The fourth reason is that you may be the victim of fraud or identity theft and your primary card will be locked while this is straightened out. You need another card while this is taken care of. I guarantee that this will happen at the least convenient time. It's important to put something on this card once a year. I find charitable contributions are good for this.

 

[jbunniii]

My mortgage is with a credit union because of the favorable rates and almost complete lack of origination fees. I switched all of my banking from Citibank to my credit union in 2009 out of disgust with the bailouts. I figured that if I were to continue to bank with Citi, I would be tacitly supporting their continued existence.

No regrets since then. Basically I get the same service level and lack of fees I had with Citibank, but I only need to maintain a $100 balance instead of $10k or whatever was required to avoid Citi's fees. ATMs and branches are not ubiquitous, but I do 99% of my banking online anyway, and I get cash at the grocery store if I need it.

For credit cards, I don't think it matters much whether you go with Big Bank or Credit Union. There are deals to be found on both sides. I stick with my legacy big bank cards because they have been open for 20+ years, and account longevity is one factor that contributes to one's credit score.

 

[jbunniii]

Is paying off the balance each month really the best?

From a credit score standpoint, it doesn't matter, as long as a payment is made every month, the payment is on time, and you aren't using too much of your available credit.

However, to avoid paying (often usurious) interest, one should of course pay off the full balance every month.

 

[Evo]

Yes, longevity is a factor. I can't believe that paying off a card account and closing it actually is a negative. CRAZY.

 

[Evo]

From a credit score standpoint, it doesn't matter, as long as a payment is made every month, the payment is on time, and you aren't using too much of your available credit.

However, to avoid paying (often usurious) interest, one should of course pay off the full balance every month.

Well, that's a financial concern, not a credit score concern. What makes sense financially doesn't necessarily make sense on your credit score.

Never make the minimum payment unless you don't care about money.

Since these two cards have no interest for 18 months, and pay me to use them, I'm using them, but plan to have them paid off before the interest starts.

 

[lisab]

Well, that's a financial concern, not a credit score concern. What makes sense financially doesn't necessarily make sense on your credit score.

I'm baffled at how the credit score is calculated. It's an outrage that they aren't 100% transparent about how they get that number, since the credit score can have so much influence on people's lives - even potential employers sometimes use it in making hiring decisions!

 

[Cygnus_A]

Since these two cards have no interest for 18 months, and pay me to use them, I'm using them, but plan to have them paid off before the interest starts.

Interesting. So then is it better for your credit score to build up a balance (and not pay things off all at once) for the first 12-18 months?

For instance, if it's 0% APR for the first 12 months, would it be worth it to buy groceries (or whatever you normally spend on), then, instead of paying the full balance at the end of the month, pay it off gradually? Then after the first year, just pay the full balance off every month?

(though D H's advice would indicate otherwise)

 

[Greg Bernhardt]

I'm baffled at how the credit score is calculated. It's an outrage that they aren't 100% transparent about how they get that number, since the credit score can have so much influence on people's lives - even potential employers sometimes use it in making hiring decisions!

For me, my score can fluctuate as much as 50-100 points depending on my debt to credit limit ratio is at the moment.

 

[jbunniii]

I'm baffled at how the credit score is calculated. It's an outrage that they aren't 100% transparent about how they get that number, since the credit score can have so much influence on people's lives - even potential employers sometimes use it in making hiring decisions!

At least it's an improvement over the situation 15-20 years ago when the credit bureaus denied that they even generated a numerical score.

Now we have the opposite problem: there are different flavors of score that are used for different purposes, so the score you see when you pull your own credit report may not be the same one used by your potential lender, even if it comes from the same credit bureau.

Still, imperfect information is better than no information...

 

[leroyjenkens]

Shop around for cards. I just got 2 cards from one of the US's largest credit card companies. No annual fee. No interest charges for 18 months. If I charge $500 in the first 3 months, they will give me back $200. I get 1% back on all purchases and 5% back on select purchases.

I would be insane not to take these cards!

Chase Freedom? I think I'm going to apply for that one after I get my Bank of America card and spend the 500$ on that one to get those free miles. I've been exploiting those credit cards for a while. Just bought a roundtrip ticket to San Francisco (I live in Florida) and only paid 10$ taxes on it just for using my Delta Skymiles card. It has an annual fee, waved the first year, so I'm going to downgrade it to a non-fee card or cancel it before that annual fee kicks in.

Yes, longevity is a factor. I can't believe that paying off a card account and closing it actually is a negative. CRAZY.

From what I've read, closing a credit card account lowers your score because it lowers your maximum credit limit. If you had 10k credit limit on that card, then that's 10k less of a total credit limit you have.
Why that decreases your credibility? I have no idea. But there are some crazier reasons out there for your credit score being lowered. For instance, from simply trying to get credit; e.g. applying for a credit card.

 

[Evo]

My daughter, Evo Child has a FICO account where she gets their reports (FICO is the actual credit reporting agency, but they're not cheap, if you even think about using services like credit.karma, READ THE AGREEMENT, don't want to say anything negative, READ THE AGREEMENT).

 

[Evo]

chase freedom?

Yes! WOOT! Get it. I was "pre-approved' and got large credit lines. It also allowed me to add Evo Child as an additional card holder and my credit goes towards building her credit, I was floored. Used to be additional card holders were not affected by the primary cardholder's payments. So I am helping her.

 

[Greg Bernhardt]

Yes!

Freedom is ok, but try your best for Sapphire Preferred. I use it almost exclusively. I love the Chase rewards system. It's the best out there.

 

[Evo]

Freedom is ok, but try your best for Sapphire Preferred. I use it almost exclusively. I love the Chase rewards system. It's the best out there.

I only took the Chase because they were pre-approved and I wasn't shopping for cards.

I once had pre-approved cards with $23K credit limits per card. My ex started forging my name to them and quickly racked up $292k in debt without my knowledge by changing the address of the cards to his office. I didn't even know I had these cards. I also believe my American Express had no specific limit.

Then I found out about the accounts that were opened in my name...

 

[Greg Bernhardt]

I once had pre-approved cards with $23K credit limits per card.

That is a huge credit limit. Who actually needs that much?

 

[jim hardy]

A nationwide bank can be handy if you travel. I kept an account at BofA for forty years because , until recently, they had a branch nearly everywhere . Fair Anne and i visit grandkids across the country and it's nice to be able to walk into a bank and deal with a real person. Now the branches i used to frequent in Idaho, Alaska, Missouri and North Carolina have closed.
So bye-bye BOA , your MBA efficiency experts are killing your outfit's appeal for seniors...

I rely on one credit card now for travel and it's from a different bank than my regular accounts. To my surprise i found it has a rewards program.
About twice a year i significantly overpay it and keep an eye on the charges.
If you get a credit card be sure they'll let you do that - writing two checks a year is a lot less hassle than twelve.

old jim

 

[Evo]

That is a huge credit limit. Who actually needs that much?

My ex husband, apparently.

 

[dlgoff]

I've only had one credit card my entire life (+ for credit score). I probably don't use it as ofter as most young people do today, but pay-off the balance in full ~75% of the time. For the other ~25% of the time, purchases are planed with a pay-off in 2 to 4 months (+ for credit score). The way I see it, it's the credit limit of the card that's important. Getting a car loan and paying it off probably influences your score more that a credit card.

 

[Cygnus_A]

Actually, one of my friends said that, if I want to raise my credit score, I should get a small loan (<$500) and pay it off gradually over the coming months.

 

[dlgoff]

Actually, one of my friends said that, if I want to raise my credit score, I should get a small loan (<$500) and pay it off gradually over the coming months.

Couldn't hurt. :thumbs:

 

[AlephZero]

A nationwide bank can be handy if you travel. I kept an account at BofA for forty years because , until recently, they had a branch nearly everywhere . Fair Anne and i visit grandkids across the country and it's nice to be able to walk into a bank and deal with a real person. Now the branches i used to frequent in Idaho, Alaska, Missouri and North Carolina have closed.

The fragmentation and general "antiquity" of the US retail banking system is amazing, to a Brit. I haven't been inside any branch of my bank for years. And I haven't had a check book for about 15 or 20 years. Even before that I only used to write one or two checks a year.

About twice a year i significantly overpay it and keep an eye on the charges.
If you get a credit card be sure they'll let you do that - writing two checks a year is a lot less hassle than twelve.

I'm sure they love you for giving them money for free. I pay off my credit card each month using the web to transfer from my bank, not by writing checks. It takes about 30 seconds of my time. If there is any problem with my internet connection, I can do it by phone (entering all the data on the phone keypad, without the hassle of talking to a human trying to sell me something I don't want!) in a few minutes. I could probably get an app to do it even faster, but I it doesn't seem worth the bother.

 

[lendav_rott]

Is it possible to function in the US without a credit card? I don't like credit cards. All of the information you need to use it is written on the damn card. When I was in Australia I memorised my card's numbers and scratched off the last 4 numbers in the front and the 3 digit code in the back and then my card issuer told me I can't use this card - I corrected him: no, ONLY I can use this card.

Actually, one of my friends said that, if I want to raise my credit score, I should get a small loan (<$500) and pay it off gradually over the coming months.

We call them quickloans here and it is the fastest way to not being eligible for a proper loan.

 

[jim hardy]

The fragmentation and general "antiquity" of the US retail banking system is amazing, to a Brit. I haven't been inside any branch of my bank for years. And I haven't had a check book for about 15 or 20 years. Even before that I only used to write one or two checks a year.



I'm sure they love you for giving them money for free. I pay off my credit card each month using the web to transfer from my bank, not by writing checks. It takes about 30 seconds of my time. If there is any problem with my internet connection, I can do it by phone (entering all the data on the phone keypad, without the hassle of talking to a human trying to sell me something I don't want!) in a few minutes. I could probably get an app to do it even faster, but I it doesn't seem worth the bother.

Giving them money for free ? It doesn't make 1/10 % in the bank. Saves me 50 cents a month postage and avoiding one late fee equals decades of bank (non)interest.

Not to mention - with all the fraud running around ? You have a lot more faith in computers than i do.
I simply won't have electronic access to my bank account on my computer. I've had too many virus invasions.
It's not the bank i distrust, it's my own computer's vulnerability to hacking.

However my kids do everything online. When I give my daughter a check she deposits it from her kitchen table. Now to me, THAT is really scary .
I'll keep my face to face and paper, thank you.

Might be a generational culture thing:

 

[AlephZero]

I simply won't have electronic access to my bank account on my computer. I've had too many virus invasions.
It's not the bank i distrust, it's my own computer's vulnerability to hacking.

From my experience, US web sites often have the most insecure electronic payments procedures. All you need is a card number, not even the security code on the back of the card, let alone checks from the card issuer like http://www.visaeurope.com/en/cardholders/verified_by_visa.aspx

My main electronic banking access also requires a physical credit-card sized device that generates a unique access key for each logon. And even if somebody steals that bit of hardware, they also need to know the password that activates it.

 

[jbunniii]

From my experience, US web sites often have the most insecure electronic payments procedures. All you need is a card number, not even the security code on the back of the card

I agree with most of what you're saying, but I will point out that many and perhaps most web sites do require the three digit code from the back of the card, not that it adds much security.

Another feature that many banks offer is the ability to create a temporary "alias" card number which you can use for online shopping. You can generate such a number in real-time, on demand at your bank's web site, so it's only a minor hassle to create such a number.

The temporary number can be configured to work exactly once, or for a short period of time (e.g. a day or two). I use this feature when dealing with particularly dodgy web sites, such as buying a textbook from India or anything from eBay.

 

[BobG]

What do you guys think about the advantages/disadvantages of being at, say, BofA vs being at a local credit union?

For a savings account and for loans, it seems that credit unions take the cake with their low interest rates and (relatively) bigger returns on savings.

But for getting a credit card, an account at somewhere like BofA or Wells Fargo seems like a better deal. Or maybe it's better to get a credit card through a third party.

I'm trying to decide how to manage my money (between spending, saving, paying back loans and investing). I'm also starting to build up credit (but don't yet have a credit card).

Any advice and/or comments?

There was a time when banks were more secure than credit unions (at least in the US). Since the savings and loan scandals (1980s or 90s?) and the resulting changes, there's no significant difference.

The only exception would be if you actually belong to the group supporting the credit union and are gaining some secondary benefit from the credit union. For example, most military bases have credit unions that focus on military personnel. Most of those credit unions would pretend that military members got their paycheck even if government shut down and quitting paying military people - in essence, an interest free loan. But, even that hasn't been very significant recently, as Congress has been certain to make military pay an exception to any government shutdowns (how could you stop military pay when we were fighting two simultaneous wars).

And, yes, paying your credit card bill in full every month before any interest comes due doesn't help your credit score much, if at all (and it may even decrease it). You've reduced the perceived risk, but you've also eliminated the reason companies want to loan you money in the first place - they want to make a profit off of the interest. I don't think paying off your balance every month would hurt your chances of getting a regular loan, but it can motivate a credit card company to try to get you switched to a card with annual fees.

 

[jim hardy]

I don't think paying off your balance every month would hurt your chances of getting a regular loan, but it can motivate a credit card company to try to get you switched to a card with annual fees.

Credit card company hits the merchant for around 3%
so if you have more than a trickle of cash flow they are raking in plenty.

I use mine for gas and travel. At $50 a tank it's no wonder they're happy.


old jim

 

[jbunniii]

And, yes, paying your credit card bill in full every month before any interest comes due doesn't help your credit score much, if at all (and it may even decrease it). You've reduced the perceived risk, but you've also eliminated the reason companies want to loan you money in the first place - they want to make a profit off of the interest.

I don't think the credit bureaus actually know whether you made a full or partial payment. All they know is whether you made an on-time payment. The bank will report that you made an on-time payment if you paid at least the minimum payment and it was not 30 days late or later. The bank also reports your balance each month, but this isn't enough to determine whether you paid it off or not. I believe the following two scenarios will look identical to the credit bureaus:

1. Your balance is $1000 in June, you pay it off on time and in full, and you charge another $1000 in July.

2. Your balance is $1000 in June, you make the minimum payment (say $20) on time, and you charge another $20 in July.

Of course in case 2, you will pay interest and in case 1 you will not. But I don't believe that matters from a credit reporting/scoring standpoint. Certainly if anyone tells you that you have to carry a balance/pay interest on your credit cards in order to improve your credit score, they are repeating a myth.

Unfortunately, to maximize your credit score, you apparently also need "diversity" of types of loans, so you may need a mortgage or car loan or some other non-credit card loan (which of course will require paying interest) if you want that 850 FICO score. But I was able to average over 800 for many years with only two credit cards, paid in full every month, and no other type of loan.

 

[SteamKing]

That is a huge credit limit. Who actually needs that much?

I once had a card with a credit limit of about $50K on it. The regular interest rate was about 23% on purchases, so I didn't use it very much, at least not without paying down any balances very quickly.

If you have good credit, you'll get scads of offers to sign up for various cards: you'll get a bunch of offers from the very same bank or banks thru which you might have any existing cards.

A lot of this occurred before 2008, and the worst offenders at mass-mailing credit card offers have now fallen by the wayside due to subsequent events.

Now, I didn't get a credit limit of $50K all at once from Day 1 of having the card. Depending on whether you use a particular card very little or a lot, the banks will raise your credit limit periodically, and if you keep your credit history clean, the banks saw no reason to stop.

 

[AlephZero]

Credit card company hits the merchant for around 3%
so if you have more than a trickle of cash flow they are raking in plenty.

But why would a card company be happy with 3%, if they can find clueless people who are dumb enough to roll over $10,000 of debt indefinitely and pay 26.9% APR on it?